ADE: U.K. district heating could be subsidy-free by 2021

by Brianna Crandall — June 27, 2016 — Low-carbon district heating networks in the United Kingdom could succeed without subsidy from 2021 if put on a level playing field with other networks, according to a new report from the U.K.-based Association for Decentralised Energy (ADE).

ADE defines district heating as a network of pipes that carry hot water and steam from a central generator directly to homes and businesses. They can be used with any fuel source, are often more efficient than individual boilers, and in urban areas can also be the cheapest heat solution available.

The report says that a regulatory-investment framework would put heat networks on par with water and energy networks, enabling large investors to consider these different infrastructure assets the same way and helping to drive down heat costs for customers.

Building on the U.K. Government’s commitment to provide £320 million in capital support for district heating networks over the next five years, the report sets out how the industry can move to a long-term, subsidy-free footing.

The U.K. Government estimates there are £2 billion in district heating investments under consideration in more than 150 local authorities, and technical potential for district heating networks to meet up to 20 percent of heat demand by 2030.

The new ADE report sets out proposals that would help attract lower-cost investment by reducing heat network capital risk, lower network costs by creating a fairer tax regime, and provide local authorities with the support they need to move forward with new network investments.

These policy proposals build on an industry framework to protect customers and investors, including the U.K’s first independent heat customer protection scheme and a new national Code of Practice, developed in partnership with CIBSE.

The new ADE report sets out three key proposals to level the playing field for heat networks:

  • Provide a guarantee to reduce the risk to investors of future heat connection capacity, leveling the playing field with other energy networks. Such a guarantee would lower the cost of capital for projects, subsequently reducing the cost of heat for customers. This policy would create an enduring low-cost framework for district heating infrastructure investment.
  • Treat district heating networks equally to electricity and gas in business rates. Heat network customers subject to business rates far higher than gas and power infrastructure, increasing heating bills by as much as 20%, up to £300 a home. These punitive costs can be particularly damaging when projects are aimed at cutting fuel poverty.
  • Extend and expand the role of DECC’s Heat Networks Delivery Unit to support planning and delivery. A relatively small government investment (about £10 million) has resulted in over 200 projects being explored, revealing a latent interest in projects from local authorities across England and Wales. The Unit’s role should be continued, ensuring there is a pipeline of investor-ready projects, and extended to support development all the way to commercialization and a final investment decision.

The new report also calls for expanding the Renewable Heat Incentive to include low-carbon heat sources from 2021; providing district heating companies with the same wayleave and access rights as other utilities; encouraging local authorities to consider district heating in planning processes; and encouraging compliance with industry standards, including the ADE-CIBSE Code of Practice and the independent heat customer protection program Heat Trust, to ensure network design, operation, maintenance and customer service delivers for customers.

Dr. Tim Rotheray, director of the Association for Decentralised Energy, pointed out:

All other U.K. network infrastructure have clear investment frameworks to secure low-cost capital investment. An investment framework for heat networks has the potential to reduce investor risk, drive down the cost of heat supply, and attract major international and UK investors.

Delivering on our heat network ambitions will help us to meet our carbon commitments as cost-effectively as possible, return control over energy to local authorities and their communities, and generate jobs and value to local areas across the U.K.”

The new ADE report, “Levelling the playing field: Unlocking heat infrastructure investment,” is available on the ADE Web site.